Summary
United States: Strong Momentum Prior to Omicron, Despite December’s Soft Payroll Print
- The Fed’s more hawkish tone in December’s FOMC minutes set the tone for financial markets this week, overshadowing the record surge in COVID infections. December’s jobs data were disappointing and a bit confusing. Nonfarm employment rose far less that expected, with employers adding just 199K jobs. The household employment data, however, had another strong gain. The number of employed persons rose by 651K. The unemployment rate fell to 3.9%. Slightly softer-than-expected ISM manufacturing and services reports and a wider trade gap suggest supply-chain issues were easing prior to the Omicron surge. Unfortunately, that surge will likely reverse some of this improvement.
- Next week: CPI (Wednesday), Retail Sales (Friday), Industrial Production (Friday)
International: Eurozone Growth Likely to Slow, Inflation Potentially Nearing a Peak
- The Eurozone December CPI surprised to the upside with a gain of 5.0% year-over-year, although underlying inflation measures were steady to slower, hinting that a peak in inflation may not be far away. On the activity front, Eurozone retail sales rose solidly in November, though that came ahead of a significant surge in COVID cases in recent weeks, and a drop in Eurozone December economic confidence suggests slower growth last month.
- Next week: Australia Retail Sales (Tuesday), Brazil CPI (Tuesday), U.K. Monthly GDP (Friday)
Interest Rate Watch: The Bond Market is Pricing In More Fed Tightening
- The New Year has gotten underway with a notable rise in longer-term interest rates. Recent economic data have contributed to expectations of more aggressive Fed action.
Credit Market Insights: Holders of Student Loans Get Another Payment Reprieve
- The Biden administration has extended student relief to May 1, 2022, pushing back payments for more than 40 million Americans.
Topic of the Week: The Omicron Surge
- COVID is back, and it is everywhere. Fortunately, vaccines, therapeutics, increased immunity and the less intrinsic virulence of Omicron appear to be decreasing severe outcomes. That noted, the Omicron surge represents a clear downside risk to the near-term outlook.
